Tutorial 1 Week 2 solution

Principle1: People face trade-offs

This is the basic theory of economics which deal with how an individual choice with
unlimited wants and limited resources. According to this theory, to get something
which individual wants he/she might sacrifice something want. This principle is
widely applicable in consumer choice theory, state nothing is free in the economy
you have to sacrifice or pay the equivalent to the service and goods you want to
consume.

There are several real-life examples, which is directly based on this

theory.

Example1: Guns and butter, it explains to protect the national border more wants
more deference expenditure(guns) then you have to reduce the expenses on
consumer goods.

Example 2: if you want to consume invest money for the future to get the return on
that then you have to sacrifice your today's consumption.

Principle 2: Trade can make everyone better off

Trade is the root of economics, trade is only happening when both consumer and
seller are satisfied at the given price level. Sometimes people thought that trade is
one side game, means only one will receive the benefit at the cost another side. But
actually, it is not true it both side game both sides receives the better incentive at the
point they trade. Mankiw concluded that different family compete with each other in
the job market as well as the consumer market.

Example 1: Trade between countries let say the trade between Mexico and the USA.
The US has a comparative advantage in services and Mexico has a comparative
advantage in agricultural products. They trade each other and exchange the goods
in which they have a comparative advantage.

Example 2: suppose you are a farmer and your neighbour is fisherman, you both are
exchange fish and grains to each other and receives the greater utility from the
trade.
Tutorial 2 Week 3
Question 3 (7 marks)

Graph of market equilibrium

The ideal situation of a market price that creates an equivalent measure of supply
and demand for an item or commodity. equilibrium is kept up by raising or bringing
price accordingly down to changes in the demand or supply. In the above graph
point E(Q*, P*) represents the equilibrium price and equilibrium quantity of the
market.

The surplus is defined as the total well-being of the society from the
trade. It consists of both consumer surplus and producer surplus. In the above figure
area of a triangle, ACE represents the total surplus.
 a) The behaviour of both the consumer and the buyer retains the maximum
surplus. Seller discriminates the price in order to capture the consumer surplus
and buyer negotiate the price to capture the producer surplus.
b) If the buyer(government regulation) or seller fix new surplus price, it will will
generates the deadweight loss in the market. Either the new market price will
increase or decline. Price increase to capture consumer surplus and decreases
to capture the producer surplus.

Tutorial 4 Week 5 solution

Economic profit is, even highly, a hypothetical and complex theory based on elective
economic activities that might have been taken by firms. Interestingly, bookkeeping
benefit computes what happened and the quantifiable result for the time. On the
other hand accounting profit is the benefit(profit) in the considering of deducting
express costs(explicit cost). Economic profit advocates unequivocal costs (explicit
cost) and verifiable(v) costs(implicit cost), what the industry bids up to seek after a
particular way. So we can say that it is more complex to calculate the economic profit
because it includes all the cost incurred unlikely to accounting profit it only calculates
the book value profit.

Yes, the firm can operate while earning zero economic profit such
as the industry which involves a high level of emission of pollutant in the
environment. They face around zero economic profit. For example, let night bar in
the society, it has the highest accounting profit but lower economic profit because it
disturbs people by creating huge negative externality(sound pollution, bad habits in
youth etc)

Tutorial 5/6 Week 6/7 solution

All four kind of market set-up has a different level of control over the price, we can
discuss the same for each type of the market.

Perfect competition: The supplier can just gracefully supply what the buyers can
devour at a given price. In this kind of market structure, the market sets the price and
firms are simply price takers and subsequently they will work however long creation
costs fall underneath income.
Monopolistic competition: this kind of market having some level of price control in
the market because of selling differentiated products. An market set-up will brand
marking, publicizing, and bundling to sell various commodities. Thus, there exist
various price in the market because of separated(product differentiation) items. In
this market, since there is various competitor, a firm or industry won't be able
influence another company's(firms) technique of price making. Accordingly, industry
will have partial control over their pricing decicion because of product differentiation.

Oligopoly: In this market, prices of service and goods are govern by

firms(competitors). Firms in such kind of market set-up are profoundly subject to
collude to each other to set price. With just a very few of producers in an oligopolistic
set-up, a firm(industry) can act upon the market price yet cannot govern the market
as whole. Thus, contension depends on commodity separation(differentiation) and
influencing power of the firm, however not on price dominance. For the almost
proportion, an apotheosis calculation technique, in the long-run, joins the reactions of
opponent firms(industry) to changes in price by its rivals.

Monopoly: The evaluating price ifluence in this kind of market is simple and
straightforward. monopoly can easily control price since the nonattendance of a
competitor. Notwithstanding, monopolist can either control supply or product price
since it is only the producer or supplier..

In the monopoly market firm is price maker, it means they

can control over the price. It is always not true that if the firm is price taker then it will
always be profitable. I do not agree with this statement because producer in the
perfectly competitive market may receive zero profit in ling-run and they can exist the
market if they are unable to cover their production cost.

Tutorial 9 Week 10 solution

The business cycle is an explanation of how the economy faces recession and
growth periodically, the full business cycle has four phases namely peak expansion,
trough and, contraction. An expansion is described by increase in the value of the
business, economic growth, and pressure on price to inflate. A peak is the highly
elevated point of the business cycle where the economy is creating at greatest
suitable yield(Y), work is at or above optimal capacity, and inflationary pressure on
price are obvious and the trough is define as the lowest growth of the economy
because of lowest economic activity at that poit takes place.

Unemployment

 Peak – The lowest rate of unemployment

 Contraction – increasing rate of Unemployment
 Expansion – the decreasing rate of unemployment
 Trough – The highest level of unemployment

Tutorial 10/11 Week 12

Question 3 (11 marks)

During the COVID-19 situation, the Australian government takes various policy into
the implementation.

Lowering the cash rate target: This policy comes under the monetary policy, it has
the target to provide sufficient fund for the firm to survive. The Reserve Bank Board
reduced the money rate twice in March 2020, to 0.25 per cent. This will leads to
encouraging the income of firms and the households in general. It is likewise helping
Australia's exchange uncovered enterprises through the conversion standard.

Covid-19, the incentive for the job loser and business loser: It is the form of
fiscal policy, to provide the minimum incentive to the people who lost their temporary
source of income. Right now Australians citizen who have lost their work or have lost
halfway pay can get to various government financial help, giving they can fulfil the
entirety of the prerequisites both on an individual and business level. These
instalments incorporate (however not restricted to): Job Keeper Payment
($1,500/fortnight), Jobseeker Payment ($550/fortnight), and Coronavirus Supplement
($550/fortnight)

Yes, the country needs both the fiscal and monetary policy to
stabilize the economic consequences from time to time. Sometimes the use of single
does not satisfy the wants or requirement because Both targets making a more
stable economy described by low expansion and positive monetary development.
Both fiscal and monetary policy is an endeavour to lessen monetary vacillations and
smooth out the business cycle.